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China trade concerns and FedEx profit warning set to weigh on Europe



It was another positive day for Europe’s markets yesterday as the German DAX, FTSE100 and EurStoxx50 all hit their highest levels this year, and best levels since October last year, as did US markets, though there was a slide into the close on concerns that trade talks between the US and China may well be running into trouble, on some key points.

This, and a profits warning from US multinational parcels company FedEx, could well see a slight souring of the mood in Europe, and a lower open this morning. FedEx senior management warned that a decline in international revenue impacted its profits and revenues in Q3, prompting it to lower its full year guidance, with revenues in Europe particularly weak.

In torpedoing the Prime Minister’s attempt to push her deal to another vote in Parliament, Speaker Bercow may well have made the prospect of a “no deal” Brexit more likely next week.

MPs can talk all they like about how they may look to try and vote again, and that last week’s vote took the prospect of “no deal” off the table, but right now all of that remains meaningless guff given that next week’s 29th March departure date remains inscribed in UK law as the current default position.

With the Prime Minister currently indicating that she has no intention of revoking Article 50, everyone appears to be pinning their hopes on the EU granting a Brexit extension.

While there is no suggestion they won’t, there is also no guarantee that they will either, and if they do the current mood music appears to suggest that any offer may well come with preconditions which MPs might find hard to swallow. Initial reports have suggested that the EU might be willing to offer the UK an extension into April to buy more time in order to flesh out the political declaration, however given the numbers they could offer her until the end of the year and the deal probably wouldn’t get through, unless the DUP suddenly underwent a significant change of heart.

This week’s EU Council meeting is unlikely to offer much in the way of clarity, with France making the most noise about the prospect of not granting an extension, with a final decision possibly coming much closer to next week’s deadline.

For now, the pound appears to be reflecting the optimism of the market that common sense will prevail, however given recent events that is a big assumption given the current febrile political atmosphere.

On the data front the UK economy appears to be ticking over quite nicely, with unemployment dropping to 3.9%, its lowest level since the mid 1970’s yesterday, while wage growth remained solid at 3.4%.

If today’s CPI inflation numbers show another drop from the surprise drop to 1.8%, we saw in January, then consumers will get a further boost to their wage packets after months of negative to low wage growth. Even if we come in at 1.8% in the February numbers it will still be a two-year low for headline CPI, with core prices also expected to come in at 1.9%. 

We’ll also be getting the lowdown on the latest US Federal Reserve rate meeting along with the now customary press conference from Chair Powell, as markets pick over every change and nuance to the statement, as well as the Q&A afterwards.

Of particular note will be how Fed officials guide their rate projections lower, and in particular whether they leave the door open to further rate rises this year in the dot plot projections. Investors will also be keen to know what the Feds plans are with respect to its monthly balance sheet reductions, or as President Trump tweeted at the end of last year, the 50 B’s.

The market appears to be more nervous about this than the prospect of further rate rises, which have more or less been priced out for this year.

EURUSD – continues to look supported for now, edging back towards the 1.1400 area, with resistance at the 1.1360 area and 50-day MA. Support remains back at the recent lows of the 1.1180 area and 61.8% retracement of the entire 1.0340/1.2545 up move.


GBPUSD – appears to be treading water for the time being, with progress above the 1.3300 area prompting some selling pressure. We have support at the 1.3170 area with support below that at 1.3030, which is trend line support from the 1.2430 December lows. We also have support back down near the 1.3000 area and the 200-day MA.

EURGBP – while below the 0.8620 area, the risk remains to the downside, after last week’s 22-month lows at 0.8475.  A break below 0.8470, has the potential to target the 200-week MA at 0.8390.

USDJPY – appears to be becalmed for now with the recent highs at 112.20 and support at 110.80, the key levels on each side of the broader range. Yesterday we saw a 34-point range between 111.63 and 111.29 with little in the way of overall direction. A move below 110.80 runs the risk for a return towards the 110.20 level.

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